MATX

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2004, for Alexander & Baldwin, Inc. (A&B), a diversified holding company operating in ocean transportation, logistics, property development, and food products. The filing includes unaudited condensed consolidated financial statements for the three and six months ended June 30, 2004, compared to the same periods in 2003.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenue increased 20% in Q2 and 23% YTD. Growth was driven by a 63% increase in Logistics Services revenue (due to volume and a late-2003 acquisition) and a 5% increase in Ocean Transportation revenue (due to improved yields and cargo mix).
• Profitability: Net income rose 30% in Q2 and 40% YTD. Ocean Transportation operating profit surged 35% in Q2, aided by favorable yields and the non-recurrence of a 2003 excise tax accrual.
• Discontinued Operations: Revenue and profit from discontinued operations decreased significantly compared to 2003, as major property sales in 2003 are not recurring in 2004.
• Food Products: Revenue and operating profit declined 18% and 87% respectively in Q2 due to lower sugar production caused by wet field conditions and lower raw sugar prices.
• Balance Sheet: Long-term debt decreased by $32 million due to normal repayments. The company reclassified $100 million of the Capital Construction Fund as a current asset in anticipation of funding a new vessel.

Guidance, Outlook, and Risks

• APL Charter Expiration: The alliance agreement with American President Lines (APL) expires in February 2006. Management expects this agreement will not be renewed in its current form. Matson estimates an annual operating profit reduction of $10 million to $20 million (possibly higher during transition) resulting from the termination of the current charter arrangement.
• Food Products Outlook: Full-year 2004 operating profit for Food Products is expected to be lower than 2003 due to continued low sugar prices and production drops estimated at 5-7% below 2003 levels.
• Capital Expenditures: Matson expects to take delivery of the new vessel MV Maunawili in Q3 2004, with a total project cost of approximately $105 million. Financing will include Title XI bonds, the Capital Construction Fund, and operating cash flows.
• Debt Management: Matson intends to repay $100 million of commercial paper notes and retire the commercial paper program in Q3 2004.
• Risks: Key risks include fluctuations in fuel and sugar prices, competitive pressures in shipping, regulatory changes (cabotage laws), and the resolution of a $2 million proposed penalty from the Hawaii Department of Health regarding air pollution (contested by the company).

Investor Verification Checklist

• APL Transition Plan: Verify the specific operational changes Matson plans to implement to mitigate the estimated $10M-$20M profit loss after the APL charter expires in 2006.
• Sugar Production Recovery: Monitor weather conditions and production reports for the Maui sugar plantation to assess if the 2004 production decline is temporary or structural.
• Real Estate Sales Pace: Confirm if the high volume of property sales in the first half of 2004 is sustainable, as management noted sales are not expected to continue at the same pace in the second half.
• Debt Refinancing: Track the execution of the $100 million commercial paper repayment and the funding of the new vessel to ensure liquidity remains stable.
• Discontinued Operations: Review the classification of future property sales to ensure consistency in reporting between continuing and discontinued operations.